United States Department of The Panama Canal in Transition: Agriculture Implications for U.S. Agriculture Agricultural Marketing Service Transportation and Marketing Programs Marketing and Transportation Analysis January 2000 The Panama Canal in Transition: Implications for U.S. Agriculture by Ken A. Eriksen Abstract Acknowledgments As part of the Panama Canal Treaties of 1977, The author appreciates and thanks the Panama the United States turned over to the Canal Commission staff, Maria de Sanchez, Government of the Republic of Panama on Sylvia de Marruci, and Dr. Victoriano Moreno Dec. 31, 1999, its control of the Panama Canal, for arranging meetings in the Canal Zone and which it financed, built, and maintained. U.S. the partial transit of the canal. Special thanks agricultural shipments are cargoes important to also to Daryl Ricard, general manager with the canal. In 1998, they made up more than Barwil Agencies (NA) Inc., who assisted with one-fifth of the canal cargo volume, more than contacts and vessel information in New Orleans. two-thirds of all agricultural shipments, and more than half of the U.S. cargo volume trans- ported through the canal. The canal is also important to U.S. producers of corn and soybeans in that it gives them an efficient and effective transport route to foreign markets. Without the canal, it is estimated that U.S. exports of corn and soybeans could be 2 percent lower, which would lower producer revenues by $303.6 mil- lion. This report addresses how the Panama Canal transition to Panamanian control will affect U.S. agriculture. Key words: Grain transportation and Panama Canal The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326 W, Whitten Building, 1400 Independence Avenue, SW, Washington, D.C. 20250-9410 or call (202) 720-5964 (voice and TDD). USDA is an equal opportunity provider and employer. ii Contents Abstract . ii Acknowledgments . ii List of Figures. iv List of Tables. iv List of Photographs . v Summary . vii Introduction. 1 Panama’s Politics and Economy . 5 Panama Canal: Development, Importance, and Post-Treaty Transition. 7 Development of the Panama Canal . 7 Importance of the Panama Canal. 9 Post-Treaty Transition of the Panama Canal . 13 Panama Canal Authority . 13 World Trade and the Ocean Fleet Projections . 14 Expanding the Canal . 15 Environmental Resources . 17 Port and Rail Privatization. 19 U.S. Agriculture and the Panama Canal . 21 Conclusion. 25 Appendix: Shipping a U.S. Grain Cargo Through the Panama Canal. 27 Bibliography. 31 iii List of Figures Figure 1–North and South America and trade routes through Panama. 2 Figure 2–Total U.S. exports, U.S. agricultural exports, and cargo volume transiting the Panama Canal, 1989-98 (million metric tons) . 3 Figure 3–Ocean rate comparison from U.S. Gulf to Japan, via Panama Canal versus around the Cape of Good Hope ($ per metric ton, based on a grain shipment of 52,000 metric tons) . 10 Figure 4–Estimated U.S. corn and soybean flows (million metric tons) resulting from increasing Panama Canal tolls and closing the canal . 23 Appendix Figure A–Profile of the Panama Canal System . 28 List of Tables Table 1–Panama Canal traffic, transits, tolls, cargo, and Panama Canal Universal Measurement System (PC/UMS) tonnage, fiscal years 1989-98. 3 Table 2–Panama Canal oceangoing transits and cargo (million metric tons) by direction, fiscal years 1989-98 . 11 Table 3–Principal agricultural shipments (million metric tons) via the Panama Canal, fiscal years 1989-98 . 12 Table 4–Panama Canal cargo volumes (million metric tons) by U.S. origin coast, total, and agricultural cargoes, fiscal years 1989-98. 12 Table 5–Historical toll rates (in U.S. dollars) per Panama Canal Universal Measurement System net ton (PC/UMS), 1914-present . 14 Table 6–World trade growth compared to fleet growth, 1998-2002. 15 Table 7–Estimated U.S. grain inspections (million metric tons) for export transiting the Panama Canal, 1989-98. 22 Table 8–Projected U.S. Gulf grain exports (million metric tons) using the Panama Canal to 2008. 22 Table 9–Estimated U.S. corn and soybean flows (million metric tons) resulting from increasing Panama Canal tolls and closing the canal . 23 Table 10–Estimated annual reduction in U.S. corn and soybean producer revenues resulting from increased tolls ($ per metric ton) or closing the Panama Canal, by State . 24 Appendix Table A–Timeline of a partial Panama Canal transit of the M/V Aspilos . 30 iv List of Photographs M.V. Aspilos locked in Miraflores first chamber. front cover Pilot overseeing M.V. Aspilos transit through Panama Canal locks . 1 Two-way traffic at Gaillard Cut . 5 Widening the Gaillard Cut . 7 Ship bow in Panama Canal’s Gatun Lock . 8 M.V. Aspilos in the Gaillard Cut . 9 Transiting into the 21st Century . 13 Grain loading in ship hold. 21 v Summary Analysis of the shipment of U.S. agricultural 12,924 transits. The volume of cargo transported commodities and products through the Panama through the canal by those ships increased 27 Canal provides vital information on how the percent during the same time period to 195.2 canal affects U.S. agriculture. It also provides a million metric tons (mmt). The average volume framework to assess potential policy changes of cargo carried by a ship increased about 2,200 resulting from the Panama Canal Treaties of metric tons (mt) to 14,863 mt. Revenues gener- 1977, which transferred control of the Panama ated by those ship transits increased 65 percent Canal from the United States to the Republic of from $327.9 million in 1989 to more than Panama on Dec. 31, 1999. This analysis covers $543.0 million in 1998. Both the number of ship the years 1989-98, provides information on the transits and cargo carried through the canal are canal’s history and future from discussions with expected to increase with expansion in world its users and operators, and includes a discussion trade through the first decade of the new millen- on recent research that quantifies the value of the nium (2001-2010). canal for U.S. agriculture. U.S. agricultural shipments are important car- A new canal organization superseded the goes transported through the canal. In 1998, they Panama Canal Commission (PCC), the U.S. made up 21 percent of the canal cargo volume, agency that operated the canal when the treaties 69 percent of all agricultural shipments, and 52 were enacted in 1979, 2 years after the treaties percent of the total U.S. waterborne export vol- were signed. As a U.S. government agency, the ume transported through the canal. Shipments PCC operated the canal on a nonprofit, break- of U.S. grains make up most of the U.S. agricul- even basis. Revenues were generated by ship tural volume going through the canal. In 1998, transits, and the PCC used them to operate, grain shipments totaled 34.6 mmt. By 2008, maintain, and invest in the canal. The new exports of corn, soybeans, and wheat transported organization, the Panama Canal Authority through the canal could total 40 mmt—a 16- (PCA), will be an autonomous agency of the percent increase from 1998. These shipments are Government of the Republic of Panama and will important revenue-generating cargoes for the operate as a for-profit organization and institute canal. One metric ton of corn or soybeans trans- its own management structure. ported through the canal generates $1.50 in rev- enue for the canal, while the same metric ton of Ships transit the canal to move between the grain generates less than $1 per mt in revenue for Atlantic and Pacific Oceans. The volume of ship U.S. producers of corn and soybeans. If changes traffic at the Panama Canal is determined largely in canal management result in increased tolls or by world economic conditions and global trade closure of the canal, U.S. grain exports would routes between countries and trading regions. decrease no more than 2 percent while canal Traffic on the global trade routes during the revenues most likely would decrease more mid-1990’s, for instance, expanded considerably, significantly. If vessels bypass the Panama Canal causing oceangoing transits through the canal and sail around the Cape of Good Hope, vessel also to increase. Between 1989 and 1998, ocean- operators lose 5 percent on the vessels’ average going ship transits increased 8 percent to daily revenue. To compensate for the lost daily vii revenue, the ocean freight rate to transport grain would likely increase. The shipping community will need to watch closely how the new organization, the PCA, manages and operates the canal. Many in.